What is the main source of law authorising this entity form?
Commercial Code and Law of the Public Registry of Nicaragua (Codigod e Comercio de la Republica de Nicaragua).
Give a brief summary of this entity form, including
Does the entity possess separate legal personality?
An SA has separate legal personality.
(Maximum) period of existence
Ninety-nine years.
Governing document(s)
The public Deed of Social Pact (Escritura Publica de Constitucion y Estatutos) signed by the shareholders. Each shareholder is liable only for their contributions to the social or corporate capital.
Liability of incorporators / shareholders
Each shareholder is liable only for their contributions to the social or corporate capital.
(Governing) bodies
Board of Directors (BOD) ( Junta Directiva ), President, Vice President, Secretary, and Treasurer.
Other particularities
Its capital stock can be issued in local currency. The taxes will be paid based on the amount of the capital stock. At the moment of formation the SA, at least 10% of the shares must be fully paid.
It is necessary to have a legal representative who is either Nicaraguan or a foreigner with residence card category 1 (work permit).
Minimum of at least two (2) shareholders.
Only Shareholders can be elected members of the BOD. Any person not a shareholder cannot hold a seat at the BOD.
There is no minimum capital stock, and the capital stock does not have to be deposited in a bank account. The initial capital stock must be reported in the accounting records of the company.
Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?
An SA is permitted to merge with other foreign companies. The Antitrust Law ( Ley de Promocion a la Competencia ) protects the local economy and companies from being diminished in the market.
If any merger or acquisition results in antitrust issues, specifically pertaining to market share, the merger or acquisition may be barred by the authorities.
Can this type of entity be publicly listed or held?
No.
Can this type of entity be used for a non-profit or charitable organization?
No, there are other legal entities used for non-profit or charitable objects such as a civil association or a non-governmental organisation. All of these organisations will have to have a legal personality approved by the Nicaraguan National Assembly and be duly registered before the Ministry of Interior of Nicaragua.
Give a brief summary of the process of incorporation, formation, or organization, including
Main documents required
For foreigners, an ID such as a valid passport is necessary. Also, the social pact shall be registered before the Mercantile Registry ( Registro Publico Mercantil ).
Involvement of notary, company register, governmental authorities
The social pact and bylaws are the Articles of Incorporation that will rule the operations of the company and the relationship between shareholders, resolutions, board of director elections and powers etc.
The social pact must be notarised by a Public Notary in a public deed. Thereafter, it is submitted to the National Registry for its registration.
Timing (estimate)
The Supreme Court of Justice provides an expediated process by paying half of the value of the registration cost. This process may take between four (4) to seven (7) business days.
Main costs, including registration and similar fees (excluding legal fees)
Approximately US$450.
Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?
Yes, in the social pact, the following must be set out: Name of the persons constituting the entity, object and purpose, capital stock, domicile and specifications regarding legal representation, as well as regarding the General Assembly etc.
Minimum number of incorporators / shareholders and residency requirements
Two (2) individuals or companies duly represented by its legal representative. They can be either a national or a foreigner.
Minimum number of directors (or other applicable officers) and residency requirements
The BOD can be formed by a minimum of two (2) persons and there is no maximum limit. The shareholders are the only ones allowed by law to be part of the BOD.
Minimum share capital, or equivalent, and payment requirements (including opening a bank account)
There is no minimum amount; however, it is usually a very low amount, for example 10,000 Cordobas (around US$320). Companies that engage in banking or insurance businesses will require a large minimum stock capital contribution.
Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?
Yes, they have to sign before the notary public or by a Power of Attorney which is duly apostilled in favour of a third party.
Is a tax identification number, or equivalent, required? If so, how is it obtained?
A tax identification unique number is given by the Ministry of Treasury, however, when the entity is registered it acquires a legal or corporate identification number (Cédula de Registro Unico).
What is the title of the applicable company registry?
Mercantile Public Registry (Registro Público Mercantil). Every major city in Nicaragua has its own public mercantile registry (Departamentos).
What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.: Articles, Ownership identification (direct and/or indirect ownership, 'beneficial owners'), Group structure, Share capital, Directors, Accounts, Insolvency, good-standing, liquidation, Liens and encumbrances on the shares, Liens and encumbrances on assets of the entity, Other (e.g. litigation, tax matters)
The information listed below must be filed at the National Register by means of the SA’s Social Pact and is publicly available:
- Articles of Association.
- Date of incorporation.
- Name and personal information of the shareholders and identity card or passport number.
- Social Objects of the company.
- Duration of the company (maximum of 99 years).
- The activities of the SA.
- Share capital (issued and paid-up).
- Legal representatives of the SA and their personal information.
- Constituting shareholders and their personal information (there must be at least two (2) initial shareholders).
- Information regarding insolvency and liquidation of the SA.
- The annual accounts.
- Information regarding General Assembly and its meetings.
A new bill regarding “ultimate beneficial ownership” has entered into force and requires that the identity of all ultimate shareholders holding 25% of the shares must be disclosed. This information may also be required by the authorities or the person who holds a power of attorney from the company.
What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?
The Board and its members represent the SA and must carry out management duties in the interests of the SA in accordance with the objects as provided in the Articles of Incorporation of the SA. The BOD will report all its activities to the shareholders of the SA.
How are the members of the executive body appointed, dismissed and replaced?
The social pact will regulate the appointment, dismissal and replacement of any member of the BOD.
The General Assembly can call a special meeting to appoint, dismiss and replace a member of the BOD. After the special meeting, a notary public will protocolise the minutes of this meeting and register it with the Public Mercantile Registry of the SA.
Is it possible to appoint corporate directors or must all directors be natural persons?
A director must be a shareholder. In the case where a corporation or entity is a Shareholder, the corporation or entity can be elected as a member of the BOD and in which case the entity must appoint an individual to represent the entity in the BOD meetings.
Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?
An SA can only have the Shareholders as the main structure of the company and the BOD. If allowed by the POA, the legal representatives may grant powers of attorney (special, full etc.).
An SA can have directors who are not employees or officers of the SA provided that the director is a shareholder.
An SA has a BOD and does not have a supervisory board.
What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?
The General Assembly of Shareholders (Asamblea General de Accionistas) includes all shareholders no matter their percentage of ownership regarding the stock capital.
The General Assembly of Shareholders can appoint and dismiss the directors of the BOD and can make any decisions with regard to the corporation. They can also grant powers of attorney.
What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?
Yes, this can vary depending on the SA’s Social Pact or its corporate bylaws. The Public Deed establishes the shareholder approvals required to authorise corporate actions and the quorum requirements for meetings of the shareholders.
Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?
No, there are no special regimes for an SA, except for those companies that will perform financing, banking and insurance activities, in which particular laws establish several additional requirements.
What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?
Once the SA is duly registered with all the fiscal and municipal licences, it is obligated to report and pay certain taxes even if the SA is not operating. At the end of each fiscal year, it is necessary to present the tax declaration before the tax authority (Dirección General de Ingresos).
Is the entity permitted to determine its own financial year?
In Nicaragua, the fiscal year is from 1 January to 31 December. However, an exception is available if the SA has offices abroad that requires a special fiscal year, but this requires the approval of the tax authority.
Is the entity subject to any statutory (external) auditor obligations?
No.
Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?
Officers and accountants/auditors are appointed by a resolution of the shareholders passed at the General Assembly of Shareholders (Asamblea General de Accionistas) or the BOD if the Social Pact authorises it to do so. All appointments must be protocolised by notary public and then registered at the Mercantile Public Registry.
What is the title designated for ‘ownership interests' (e.g. shares, quota, interests, membership)?
Shares (acciones).
Are different classes of ownership interests possible? If so, what are some examples of different classes?
Fractional shares cannot be issued. If provided in the bylaws, the SA can issue preferred shares that will grant the holders of such shares special rights different that the rights of the common shareholders.
What documentation is required for the transfer of ownership interests?
The Commercial Code provides that the ownership is transferred by the endorsement of the shares in the shareholder’s registration book. A sales and transfer contract can also be signed by the parties. The bylaws will regulate the transfer of such shares to the new shareholder.
Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?
The transfer must be inscribed in the Book of Registry of Shareholder which is a private record.
Are there any applicable stamp duties imposed when transferring ownership interests?
Yes, the seller must declare the income from the sale of such shares in its annual income tax declaration. The buyer must retain 10% of the value of the transaction and report the transaction to the tax authorities and pay such retained amount to them.
How are shares issued? (including information on payment obligations, registration requirements)
All shares are registered in the Shareholders Registry Book and share certificates are provided to each shareholder. There are no further payment or registration obligations or requirements.
Further information on equity contributions, e.g., Non-cash payments on shares; (Share premium) contributions without issuance of shares, Can partially paid shares/ownership interests permitted and what are the restrictions on them?
There are no special requirements only if the parties agree other terms. Shareholders’ contributions can be made in cash or by the transfer of an asset, usually a real estate property.
The value of the property will be determined by the report issued by the state surveyor.
Any requirements with respect to share cancellation, share repurchase and other capital reductions
It is uncommon for a SA to reduce its capital stock. There are no restrictions respecting a company reducing its capital stock. A reduction in the capital stock requires that the Shareholders approve the resolution making the reduction and the manner in which it will be done. The law does not limit the right of the Shareholders to make the reduction, it only requires approval in accordance with the minimum votes as set forth in the Articles of Incorporation, that a mechanism for the reduction is in place and that a court with jurisdiction approves it.
Any requirements with respect to distributions to shareholders?
The Shareholders’ Assembly decide on the distribution of dividends to the shareholders. Also, they can decide whether or not distribute any dividend to the shareholders.
Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?
Yes, if said agreements do not contravene the Social Pact and the bylaws of the SA.
Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?
The SA has to pay a yearly corporate tax to the tax authorities and the municipality. This will depend on the yearly sales of the SA. There are other types of taxes that SAs must pay if they have any economic activity such as the sales tax and income tax. An SA must also make proportional payments respecting the social security of the employees and a monthly payment to the institute of technology.
What are the general corporate tax rates? (Specify if there is a national versus local distinction).
Income taxes (IR) will depend on the yearly income of the Company with a rate up to max of 30%.
Municipality taxes are payable in the amount annually 1% of the monthly sales, annual income taxes are payable in the amount of 3% of the sales over the year, garbage municipality taxes are payable and are based on the income of the annual sales and a withholding tax 2% over any activity.
Sales Taxes in Advance 15% over the monthly invoices issued by the SA.
Social Security percentage of the employer 21.5% over the salary of the employee monthly.
Institute of Technology contribution equal to 2% of the monthly wage of the workers.
In case of dismissal or resignation of the employees, the SA must pay by law a severance package equal to one (1) month of salary for every year for the first three (3) years and the amount equal to 20-days salary for years four (4) to six (6). The severance payment will be subject to the withholding taxes and social security contributions as set forth by law.
Summary of any specific matters, e.g. recent or prospective major legal developments
The last major legal development is to require disclosure of the ultimate beneficial owners who hold more than 25% of all the shares of the SA.